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This Healthcare Revolution Is Just Getting Started

Health insurance companies are spending billions of dollars to make sure the doctors and other medical-care providers they work with have the tools they need to move from fee-for-service medicine to value-based care and population health.

The recent announcement from Humana(NYSE:HUM) that it's launching two businesses to help physicians "transition from fee-for-service to value-based reimbursement models" is the latest effort in the health-insurance industry to prepare doctors for the new world of population health. Value-based reimbursement is tied to health outcomes, doctor performance, and related quality metrics.

From a business point of view, much is at stake in this transformation of the healthcare reimbursement system. Insurance companies stand to make more money through population health efforts as long as the doctors and hospitals in their networks are achieving the established quality measures while lowering healthcare costs.

However, a RAND Corp. study backed by the American Medical Association this month said physicians don't have what it takes to get paid through new alternative reimbursement models. The study cited, among other things, a lack of capital, administrative expertise, and the ability to evaluate and gather data on populations of patients as problems for doctors in achieving this new order.

But the payoff the insurance industry could enjoy for helping providers could be huge. Helping coax doctors and hospitals toward value-based payments means potentially less costly medical claims for insurance companies and bigger profits. And that's good news indeed for investors in health-insurance stocks.

Aetna(NYSE:AET), UnitedHealth Group(NYSE:UNH), and Blue Cross-Blue Shield plans such as Anthem(NYSE:ANTM) and Humana are among the big name insurers spending huge amounts of time and money to make sure their networks of doctors and hospitals have the tools they need to better coordinate patient care.

Humana said its two new businesses, Transcend and Transcend Insights, would partner with physicians and care teams in myriad ways no matter how far they are along the path to population health. Humana wouldn't disclose how much it's spending on the two subsidiaries, but analysts expected it to be competitive with rivals that have disclosed figures of $1 billion or more.

"The launch of Transcend and Transcend Insights is reflective of Humana's goal to improve the health of the communities we serve by making it easy for people to achieve their best health," Humana's chief executive officer, Bruce Broussard, said.

Alternative payment models such as accountable care organizations and patient-centered medical homes, often require practices to hire nurse-care coordinators to keep in regular contact with patients.

To make sure patients are taking their medications and getting the right care at the right time, population health requires the latest in IT infrastructure to gather real-time data. Medical groups and individual doctor practices often don't have these tools, which means health plans are pitching in to help by paying for a nurse or information systems as part of their contracts with physicians.

It's not a minor commitment for health insurers.

"Aetna has invested $1.5 billion in establishing Healthagen, a business that enables providers to engage in population health and care management programs to advance the health of their patients," said Dan Finke, CEO of accountable care solutions, which is one of several Aetna businesses under the Healthagen portfolio.

Population health isn't a passing fad. Already, the Centers for Medicare and Medicaid Services have said half of all Medicare reimbursements by 2018 will be made to medical-care providers through "alternative" payment models. Insurance companies, too, are making similar proclamations in their commercial contracts with doctors and hospitals.

Author

Bruce Japsen is a veteran health care journalist. In addition to his columns for Motley Fool, he is a regular contributor to Forbes and is the author of the new book, "Inside Obamacare: The Fix for the Nation's Ailing Health Care System," which is part of Forbes' signature series of ebooks this year. He is also a regular contributor to the New York Times, Chicago Medicine magazine, and Life Matters Media. He contributes analysis on the Affordable Care Act and other health care topics for CBS’ WBBM in Chicago, PBS affiliate WTTW's Chicago Tonight and Fox News' Forbes on Fox, among other radio and TV outlets. He teaches at Loyola University Chicago and the University of Iowa Journalism School's Masters in Strategic Communication program.